Alibaba: No plans for spin-off IPOs, focusing on investing in organic growth

Summary of Alibaba 2QF24 Conference Call, for earnings report analysis, please refer to "Late Afternoon: Alibaba's Journey is a "Long March""

Q&A Analyst Questions and Answers

Q: How should we think about the restructuring and plans we are currently undergoing? Besides the newly announced regular dividends, how should we view shareholder returns in the coming years? With our $53 billion in net cash, would we consider further expanding our buyback program or even issuing special dividends?

A: While others may have many ways to provide value to shareholders, we have already announced multiple methods, from the comprehensive spin-off of our cloud business to stock buybacks, and we have explained our strategic thinking and reasons for not pursuing a spin-off. There are other ways to provide or enhance returns for shareholders. Currently, our idea is that we should enter an investment growth phase across multiple businesses, from Taobao and Tmall to the cloud. Therefore, our cash has valuable directions for use. Instead of a comprehensive spin-off, we aim to achieve sustainable growth through investment in our businesses. Our core business will certainly undergo transformation, but looking ahead, we are very optimistic. As for stock buybacks, we are still executing the $4 billion overall stock repurchase plan approved by the board. We will not consider a one-time cash dividend. The priority for cash usage must be invested in future growth.

Q: Because you have been increasing investments recently, in which areas have these investments achieved results beyond your expectations, and in which areas do you see room for improvement? Are these investments more aimed at regaining market share or ensuring sustainable growth in GMV and CMR?

A: We have three key strategies: putting users first, building an ecosystem where brands and merchants thrive together, and driving innovation through AI technology. In terms of user investments, we have increased investments in platform construction to enhance repurchase rates and improve price competitiveness in acquiring new users. We have already seen increases in both time spent and active buyers on the Taobao app.

As for our investments in enriching Taobao content, we have seen an increase in organic users, those who actively open the app and come to us. We have also seen an increase in the time users spend on the platform. We have achieved good growth in user numbers and their time spent. Therefore, all of these have given us more confidence, and we need to continue these investments to enrich the content environment.

AI is the defining technology of our era and a crucial driver of business growth. Therefore, we will certainly continue to invest in AI, leveraging its capabilities to help merchants achieve sustainable development and support long-term business growth.

I believe AI will unlock and create new experiences and fun for consumers. Our collaboration with WeChat primarily focuses on a few limited areas, one of which is traffic.In terms of co-building the system, we are also committed to enhancing our recommendation capabilities. In terms of policies, we provide $100 million in subsidies and bilateral policy support. For Taobao, we are an open platform. We are willing to work together with all partners to provide support for merchants.

Q: Can management share more about the goals for the next few years and how we plan to achieve them, especially regarding turning around the loss-making businesses and any specific business sectors that we believe can turn around in a certain period of time?

A: We pay close attention to the return on investment (ROI) and have indeed set a goal to increase the ROI to double digits in the next few years. Therefore, for all these core businesses, growth and future profitability will definitely generate more returns, which will help increase the ROI. We need these businesses to become profitable as soon as possible, and we are also looking for investment opportunities for monetization, which will bring us cash that we can ultimately use to provide returns to shareholders.

Q: Your decision not to fully spin off the cloud business. Is the withdrawal of the spin-off and IPO a temporary decision or a permanent one? If market conditions or financial prospects change, would you reconsider this decision? Given the US restrictions on AI chips, can you talk about your views on this sustainable growth model?

A: Regarding our announcement to no longer proceed with the full spin-off, for us, when we announced the full spin-off, we were looking for a financial engineering way to showcase the value of the business. At that time, we believed that the operating environment of a company was predictable, and we had the ability to predict the business, communicate with investors, and provide a certain level of transparency to investors who would hold the cloud intelligence shares independently. However, the situation has changed.

Now, we are not focused on financial operations, but on how to develop the cloud business. A large part of this involves our group providing cash for investment because in the AI-driven world, developing mature businesses based on highly networked and highly scalable infrastructure requires investment. Therefore, we would rather show investors the operational performance of the cloud business instead of separating it, and we hope to increase value for shareholders while achieving future growth, revenue, and profit.

In the future, we will focus on the public cloud, and the second business will be GPU-based AI computing. Obviously, there have been significant changes in external environmental policies, among other factors. In the Chinese market, we can expect to see various chips being used and various providers meeting the demand for AI computing power. I believe that China's cloud will play an increasingly important role in supporting the development of AI.

In this market, because the cloud allows developers to achieve higher efficiency without worrying about the complexity of AI chip design, we have a carefully designed set of products to support development, support a cloud with multiple chips, and we have these different layers, platform as a service, model as a service, infrastructure as a service. We can support all these different levels of heterogeneous architecture, and I believe that with these, we are ready to provide tremendous value to the Chinese market.A: Could you please provide more details on the countries and regions that Choice has entered? Can you share the timeline for reaching breakeven? For your AIDC business, you have a hybrid of Turkey and Southeast Asia's local e-commerce, as well as cross-border AliExpress. What is the focus in the long run?

Choice is built on top of the existing AliExpress platform, which is present in over 100 different countries. So what we are really doing with Choice is transitioning from a pure platform model to a platform + Choice model, a fully managed model. We have found that the user experience on Choice is significantly better than the pure platform model. Therefore, in this regard, Choice is the main driver of our business growth.

Since its launch, Choice has grown rapidly and its share of orders has been increasing. Therefore, I would say that within the next few quarters, Choice orders will account for more than 50% of global AliExpress revenue.

So Choice is still in the investment phase of the business. Its profitability is currently negative, but as it continues to grow, its unit economics will definitely improve. Currently, our primary focus is on achieving growth, but the unit economics and profitability will certainly be optimized in the future.

Therefore, in terms of local e-commerce models and cross-border models, the effectiveness varies in different countries. I wouldn't say that we have a fixed percentage allocation for how we distribute the business. It actually depends on how you can provide the best user experience and meet the needs of users in different countries and markets.